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The Indian Patent Office approved its first compulsory license application, authorizing the Natco Pharma to sell a generic copy of Bayer’s patented drug Nexavar at a price of Rs 8,880 ($175) for a month’s supply. Bayer currently charges over Rs 2.8 lakh ($5,500) for a month’s supply (120-capsules) of Nexavar – its brand name for the drug “sorafenib tosylate” used in treating renal and liver cancer. This license will allow Natco Pharma to sell the generic drug at a 97% discount, and will effectively end Bayer’s monopoly over the lifesaving medicine.

Since 1995, compulsory licenses have been legally recognized as a means to provide accessible and affordable drugs. In accordance to Article 31 of the World Trade Organization’s Agreement on Trade Related Aspects of IP Rights (TRIPS agreement), compulsory licenses can be granted three years after a drug is patented, if the patent-holder fails to make the drug affordable and accessible.

India’s landmark decision to approve Natco Pharma’s compulsory licensing approval will significantly impact the pharmaceutical industry. High R&D costs will no longer justify monopolistic drug pricing, and companies currently holding patents in India will be forced to engage in more affordable pricing strategies to retain their IP rights and profitability. Domestic generic companies will be able to capitalize on the R&D investments made by global pharmaceutical companies if they can successfully reverse engineer the patented product. In such case, the local drug companies will be required to pay a royalty to patent holders (6% of net sales each quarter). Companies that expect to invest in innovative research and product development in India may be discouraged from doing so due to the uncertain reward for their efforts. Globally, this decision may encourage a greater number of developing countries who are in the WTO to apply the compulsory licensing stipulation to provide more affordable drugs in their domestic market.